Illustration by Andrey Petrov
Bitcoin grabbed my intellectual curiosity in a way that nothing had in a long time. I got kind of manic for a few days, reading all day, staying up late, thinking about Bitcoin all the time. It reminded me of being 14 or 15 and reading everything I could about hacking and security — you know, back when the web was cool. Some part of me felt like it been bored in all those intervening years, waiting for this.
~Andrew Badr
Andrew Badr first read about Bitcoin in early 2011 on Hacker News, where debate over the digital currency was polarized. “Bitcoin was either going to save the world, or it was a stupid idea doomed to fail,” as Badr puts it. But within several months, Badr had bought a pool of bitcoins and exhausted his friends with talk of his unfamiliar interest.
Badr spent time on online forums talking with other people who believed Bitcoin could change the world, yet he had never met someone in person who understood the cryptocurrency. On the discussion board BitcoinTalk, he invited fellow Bitcoin enthusiasts to meet up at a San Francisco bar. Badr relates:
The first meeting was just six people at a bar. I remember feeling at the time like we were members of some esoteric cult. We believed strongly in an idea — that Bitcoin might be part of the future — that almost no one outside of that room believed, or even comprehended. That’s the kind of situation where you ask, are we just insane?
In an ironic twist considering the currency’s digital nature, Badr described how Bitcoin “felt less real” until he met other Bitcoin converts. Badr continues to organize Bitcoin meetups today.
The value of all existing bitcoins reached $1 billion last spring, attracting interest from major media outlets, government regulators, Wall Street, and venture capital. Its value has since risen and the number of vendors accepting the currency has grown.
Were Bitcoin a startup, its founders would grace the cover of Forbes and its early employees attract similar interest. But Bitcoins’ creator or creators — the person or perhaps people who introduced Bitcoin under the pseudonym Satoshi Nakamoto — remains anonymous. And the decentralized nature of Bitcoin means that the many individuals involved in its success — its evangelists, early adopters, and Bitcoin entrepreneurs — are scattered around the globe.
As a result, they are not well known. Descriptions of the Bitcoin community often serve as a rorschach test for commentators’ view of the Bitcoin project itself. Paul Graham of Y Combinator, which invested in a Bitcoin startup, wrote that he was intrigued: “It has all the signs. Paradigm shift, hackers love it, yet it’s derided as a toy. Just like microcomputers.” Newsweek journalist Leah McGrath Goodman reacted to the furor over her article by saying that “fanatical Bitcoiners” will “see all this in a different light once they reach puberty.” Some assumed that users’ sole interest was using Bitcoin to buy drugs on the online black marketplace the Silk Road.
To understand the community that fueled Bitcoin’s growth, we talked to 3 early Bitcoin adopters: Andrew Badr, Andrey Petrov, and Andrew White. The three started following and using Bitcoin in late 2010 to mid 2011 and know each other from Badr’s meetups. While not the earliest adopters, nor representative of the entire Bitcoin community, their experience presents a perspective on the uncertain, chaotic rise of Bitcoin and the people that enabled it.
True Believers
Most early adopters did not approach Bitcoin casually. Like Badr, Andrew White went all in. He volunteers that his library has 50-60 cryptography books because he “wanted to learn deep concepts behind Bitcoin.” In a statement not usually said with genuine excitement, Andrey Petrov explained that he read the Bitcoin white paper that Nakamoto wrote to introduce the currency as well as “everything I could learn about it.”
Nakamoto’s concept paper highlighted how Bitcoin doesn’t require transaction fees like traditional finance. Since credit card companies have to verify purchases and investigate fraud, vendors pay fees of roughly 2.5% on each transaction. Given how many companies have profit margins of 5% or less, it’s a powerful economic argument for Bitcoin. But Badr says the single digit attendees of his first meetup, and the dozens that came to the following events, did not have such narrow motivations. True believers had to see more.
Badr describes his own motivation as Bitcoin’s potential as a “radically novel technology” and an “instinct about decentralized systems, informed by the rise of the Internet.” Similarly, Petrov thought that Bitcoin might finally fulfill the unifying promise of the Internet as a “global village.” The excitement over Bitcoin reminded White of the enthusiasm for Linux, the open source operating system, during the late nineties and early 2000s. Only stronger.
For other Bitcoin enthusiasts, however, the technology was inseparable from politics.
As Priceonomics explored in a previous article, Bitcoin represents an impressive technical achievement in cryptography. Yet Nakamoto introduced Bitcoin over a cryptography mailing list popular with “crypto anarchists”: people that want the Internet to eliminate government control over personal and economic life through cryptography-enabled anonymity.
Bitcoin could help do so by cutting banks and governments out of financial transactions and money management. Nakamoto suggested that he shares this motivation, most prominently by referencing an article about bank bailouts in the Bitcoin code. Badr describes many attendees of the early meetups as equally motivated by Bitcoin’s libertarian potential.
The February 2014 Bitcoin Meetup in San Francisco. Photo credit: Dillon Morris
White, on the other hand, describes early Bitcoin enthusiasts as financially driven. Attendees of the first meetups included the founders of the biggest exchanges that allowed people to trade bitcoin for traditional currency: Mt Gox, ExchB, TradeHill, and Coinbase. Petrov notes a current of the community obsessed with trading bitcoin that spent their time trying to buy bitcoin at a low price and sell high.
The motives of different early adopters not only differed, they sometimes clashed. Coinbase — a company sometimes described as the Paypal of Bitcoin — touts its easy to use website and compliance with financial regulations. For crypto anarchists, this acceptance of government oversight and central institutions (Coinbase holds it users’ bitcoins) betrays Bitcoin’s purpose.
But thanks to Bitcoin’s decentralized nature, everyone could still support Bitcoin. Enthusiasts did so by telling friends and members of the press about Bitcoin, building applications such as a digital wallet for Android, mining bitcoin, founding exchanges or other businesses, and accepting Bitcoin as merchants. Lacking leaders, Bitcoin’s supporters could disagree on what it represented. It made for a big tent: currency traders arbitraging bitcoin prices played on the same team as crypto anarchists who cursed Wall Street’s existence.
The Wild West
When this author bought bitcoin on Coinbase one month ago, it was an efficient process. As the bankruptcy of the Mt Gox exchange recently showed, buying bitcoin can still be a wild ride. But it’s increasingly secure, professional, and streamlined.
In 2010-2011, this was not the case.
Originally, anyone could create or “mine” bitcoins by running a simple computer program. But by design, the process required an increasing amount of processing power. By the time Andrew White sought to mine bitcoins, it took the average laptop an exorbitant amount of time. (Today, miners use custom built hardware, a practice that became necessary in 2011.)
So White began operating a one-man exchange. He exchanged bitcoins for money and vice-versa through Paypal until Paypal shut down his account. The Mt Gox exchange existed, but despite being the most popular way to trade bitcoin, it was still unknown enough that White was ignorant of it.
And Mt Gox was hardly more reliable than an individual operation. An entrepreneur who originally wanted the site to be a marketplace for Magic the Gathering Cards created the exchange “on a lark.” Although he sold the exchange, it still lacked professionalism. In June of 2011, hackers succeeded in setting the sell price to several pennies and stole half a million bitcoins from Mt Gox user accounts. As Ars Technica reported, dozens of customers had already decided “to stop using the exchange, arguing that the site’s administrators lacked the technical sophistication to build a secure and reliable currency exchange.”
As a result, everyone trying to buy or sell bitcoin needed to trust an individual or new exchange to play honestly. “I had a good trading record, a good reputation,” White tells us. For many newcomers, however, the prospect of sending a money order to a stranger was daunting. “Do I really wanna pay so much for something so ridiculous?” White recalls of his first purchase. “But I realized it was forty bucks, so I sent the Paypal and hoped I would get the bitcoin.”
This ad-hoc, make it up as you go, who-can-I-trust ethos pervaded Bitcoin’s early years. “The Wild West,” says Petrov, who didn’t try to profit from Bitcoin but followed it like an anthropologist. Or TV drama viewer. “The bitcoin world [is] ripe with drama. Any given week, there’s some crazy scam or controversy with the protocol. Something that rocks the entire economy. It’s really addicting.”
Examples are not hard to come by.
The question of Satoshi Nakamoto’s real identity is a source of endless speculation, with suspects ranging from prominent cryptographers to the NSA to time travelers. To take another case, shortly after declaring bankruptcy, Mt Gox announced that it “found” 200,000 bitcoins worth over $100 million in an old digital wallet it thought empty.
Then there is the Silk Road, the online marketplace that used Bitcoin and Tor to ensure anonymity, allowing people to buy and sell anything from heroin to assassinations. Silk Road did $1 billion worth of mostly illicit business before the FBI arrested its founder, Ross Ulbricht. The alleged story of Ulbricht’s criminal enterprise mimics Breaking Bad minus the cancer: Ulbricht is a 29 year old former eagle scout that friends describe as “a good person” and “a hippie.” Yet he ran Silk Road under the handle Dread Pirate Roberts and allegedly hired hits on people who threatened Silk Road’s existence. Ulbricht’s devotion to Silk Road was such that much of the drama Petrov enjoys following today involves the scams and hacking scandals of Silk Road’s successors.
Early on, Silk Road was so synonymous with Bitcoin that journalists and politicians commonly referred to Bitcoin as a currency for Silk Road. Although frustrating for supporters trying to convince the mainstream that Bitcoin was safe, Andrew Badr saw Silk Road as a sign of Bitcoin’s potential. “Seeing Silk Road was eye opening because that was something you can point to that simply wasn’t possible before Bitcoin,” Badr told us. “That anonymity wasn’t possible before, and whenever something is made possible that wasn’t, you have to pay attention to the tech.”
A common adage for startups is that it is better to build something that a few people love than something a lot of people like. As Badr says, Silk Road was “where Bitcoin’s advantage was most obvious.” It was Bitcoin’s “killer app.” Even early adopters who don’t support Silk Road recognize, as Andrew White does, that “it was the main economic engine of Bitcoin” early on. People believed in Bitcoin’s superiority for online transactions, sending money, and so on, but Silk Road, Badr notes, provided an obvious use case “right off the bat” without waiting for widespread education and infrastructure to enable mainstream adoption.
Although it’s now easier to feel fatalistic about the inevitability of digital currencies, in the Wild West of Bitcoin’s early days, supporters did not feel certain of its longevity. Petrov says that people who “understood it… realized its fragility.” Andrew White adds, “It was so much smaller and less well understood. Most people had no idea where it was going to go and whether it would survive another 6 months.” As with any project, implementation mattered as much as the idea. The code could have contained major flaws, but the one major security vulnerability to be exploited was quickly discovered and fixed in 2010. Just this week, the IRS released guidelines for how Bitcoin profits would be taxed, leading to frenetic debate about how it would affect the Bitcoin ecosystem.
As Andrew Badr told us, he no longer feels crazy for believing in Bitcoin like he once briefly did, but he knows that “we might still be wrong.”
Among the Developers
For Andrew White, reading outsiders’ reactions to Bitcoin was a frustrating experience. “One of the biggest things that made me facepalm,” he says, “was seeing articles that described Bitcoin as nothing. ‘Oh, here, we invented this thing out of nothing. Bitcoin is nothing. Just a mass illusion.’ Yeah, all currency is just a mass illusion.”
The list of important inventions and products originally dismissed as useless has a fine pedigree. But the fact that Nakamoto published Bitcoin pseudonymously among people dreaming of how the Internet could make governments obsolete, rather than, say, at a MIT conference, both seeded Bitcoin in a supportive and active environment and made it easy for people like economist Paul Krugman to dismiss Bitcoin with a wave of an op-ed as libertarian foolishness.
As a result, Bitcoin’s early adopters worked mostly in technical fields. Andrew Badr and Andrey Petrov are both coders with involvement in startups. Andrew White, meanwhile worked in IT and says he now has a day job at a tech startup.
It’s typical for developers to be early adopters of new tech, but it was especially true early on when people dismissed Bitcoin as an illusion. Early adopters had to grasp how Bitcoin worked and its benefits from technical sources. As Petrov explains, many adopters “read the white paper and supporting articles and some of the code.” As an engineer, he saw the opportunities and the “functionalities it enables.”
Bitcoin began with a great product in Nakamoto’s code, but it lacked the marketing pitch to explain its value to the average (or even atypical) person. If Nakamoto was Steve Wozniak, he lacked a Steve Jobs. “[Bitcoin is] very attractive to the libertarian viewpoint if we can explain it properly,” Nakamoto once wrote. “I’m better with code than with words though.”
As Andrew White explains, it took years for approachable language to develop around Bitcoin: “People had a really hard time even describing the process of mining, no one really understood it or the math. Trying to describe it to newbies or girlfriends… the language wasn’t there yet.”
The analogy of bitcoins as digital coins, for example, can be a red herring. Arguably a better analogy is that of a “global public ledger” or a shared record that everyone constantly updates and agrees on. Bitcoin is a record of all transactions ever made, so that everyone knows which “keys” or accounts have which bitcoins. It’s less a matter of exchanging coins than it is analogous to a bank updating its records.
Over time, the community got the wording right to explain Bitcoin. The “global public ledger” phrase helped explain the currency. White also cites the popularity of a YouTube video that presented Bitcoin in approachable language and friendly animation complete with jokes about alpaca socks.
Getting Rich on Fun Money
After following Bitcoin for several months, Andrew Badr decided to invest. He believed bitcoins were an optionality type investment with little risk but a huge potential upside. He bought at $10 per bitcoin, and the price almost immediately crashed. But he didn’t panic sell. He stuck to his strategy of holding on for the long term, and only began selling bitcoin in 10% increments once the price struck $100.
Andrey Petrov, on the other hand, says that “he’s not a big gambler” and didn’t want to invest. So instead he offered to draw stick figure drawings in exchange for a bitcoin. He earned enough to experiment with bitcoin purchases.
We assumed that early adopters did quite well financially, and many did. Gavin Andresen of the Bitcoin Foundation has revealed that he’s made enough to retire. But none of our sources have bought a penthouse yet. Petrov preferred to dabble than invest; Andrew White’s Bitcoin businesses did not bring in the big bucks; and Badr says, “Like everyone else is saying, ‘I wish I’d bought more back then.” He describes his profits as “a nice bonus,” not retirement money.
White says that he is similar to many early adopters who “didn’t profit greatly from their involvement.” A big reason why is that even these believers still saw Bitcoin more as Monopoly money than an imminently valuable currency of the future. “Part of me misses the shady days of 2011 when it was all still fun money that no one really took seriously,” White says. “It was all wild hijinks and governments and banks didn’t care about it.”
White worked on a number of Bitcoin company ideas, and one service generated hundreds of bitcoins a month. But at the time, they were still worth around $5, and he paid developers in bitcoin to work on his projects since it seemed cheap. “I wasted an embarrassing number of bitcoins on projects that went nowhere that seemed to have potential at the time,” he says.
One of Andrey Petrov’s drawings
Many simply sought out ways to spend bitcoins for the thrill of seeing it work. “The best part of owning bitcoin is the feeling of participating in the future,” Badr tells us. People sent Petrov bitcoins for his drawings; Badr bought a box of candy from Silk Road; Petrov spent his bitcoins on video games, web hosting, and a German service that let him order takeout. In 2010, a programmer in Florida paid someone 10,000 bitcoins (then worth fractions of a cent each) to buy and deliver him two pizzas. Today, those two pizzas, often considered the first transaction in bitcoin, are worth millions of dollars. But the programmer had mined the bitcoin, so he saw it as two free pizzas. He described the experience of paying for something in bitcoin as “incredibly cool.”
The early adopters we spoke to were not regretful. They saw other benefits from their involvement. Andrey Petrov cited how much he learned from Bitcoin — economics, psychology, cryptography — and the excitement of “being present during the birth of something important, like the first IOU note thousands of years ago, that sort of monumental thing.” White also sees the learning opportunities of Bitcoin as worth “missing out on the party.” It’s motivated him to keep working in the digital currency space, and he enjoys how Bitcoin has brought together an interesting mix of smart, ambitious people. “The tech is just a good excuse for people to talk to each other,” he says.
Bitcoin’s Legacy
Although we’ve compared Bitcoin to a startup, its potential is better understood as a paradigm shift like the development of the personal computer, the Internet, or Linux and open-source software development. Their development disrupted industries, enabled new businesses, and changed how we communicate and play.
If Nakamoto’s vision wins out, it may not be bitcoin. People may adopt a different alternative currency. It could be a successor currency like Peercoin that offers improvements on Bitcoin. Or a specialized form, such as a coin offering full anonymity like Zerocoin proposes. Or a digital currency like Dogecoin, whose name is based on an Internet meme about Shiba Inus, that has superior marketing.
But when it comes to Bitcoin’s legacy, currency may be just as flawed a metaphor as a startup. Bitcoin the technology or protocol (with a capital ‘B’) has applications outside of currency. Bitcoin is a system that allows people to trust in an algorithm rather than a central institution. It allows a decentralized network to share information, agree on a common “blockchain” or “public ledger,” and withstand a hacker’s attempt to introduce false information.
As a currency, bitcoin (with a lowercase ‘b’) applies Bitcoin’s peer to peer system to replace the role of banks in overseeing digital transactions and controlling the money supply. But what other central institutions could be replaced?
In a further blow to Wall Street, advocates believe Bitcoin protocol could replace its role as the vendor of stocks, bonds, and other financial assets. With the protocol monitoring who owns financial assets and the flow of dividends and other payouts, Bitcoin could remove the need for centrals institutions. Users would simply pay a tiny fee for each transaction to keep the programs verifying transactions.
Bitcoin could be used to replace entire companies. One Brazilian programmer, concerned about censorship, has created a Bitcoin-based Twitter service called Twister. Naval Ravikant, the co-founder of AngeList, has proposed that open source software startups could crowdfund their ventures by creating its own bitcoin-like cryptocurrency. A similar if more futuristic idea that excites Andrew White is a distributed anonymous corporation — essentially a company run by open-source code and Bitcoin protocol.
Wrapping one’s head around these visions is not easy — as difficult as understanding Bitcoin must have seemed to the earliest adopters. Their future is even hazier than that of bitcoin as a digital currency. As Petrov told us, “Obviously Bitcoin has grown a lot in value, but I still think of it as an interesting experiment. It still feels like being present during the birth of something important.”
This post was written by Alex Mayyasi. Follow him on Twitter here or Google Plus. To get occasional notifications when we write blog posts, sign up for our email list.